MODES OF ENTRING A FOREIGN MARKET

Exporting is the process of selling of goods and services produced in one country to other countries. There are two types of exporting: direct and indirect. Direct exports Direct exports represent the most basic mode of exporting, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution. Direct export works the best if the volumes are small. Large volumes of export may trigger protectionism.

Indirect exports Indirect exports are the process of exporting through domestically based export intermediaries. The exporter has no control over its products in the foreign market.

Licensing
An international licensing agreement allows foreign firms, either exclusively or non-exclusively to manufacture a proprietors product for a fixed term in a specific market. Summarizing, in this foreign market entry mode, a licensor in the home country makes limited rights or resources available to the licensee in the host country. The rights or resources may include patents, trademarks, managerial skills, technology, and others that can make it possible for the licensee to manufacture and sell in the host country a similar product to the one the licensor has already been producing and selling in the home country without requiring the licensor to open a new operation overseas. The licensor earnings usually take forms of one time payments, technical fees and royalty payments usually calculated as a percentage of sales

Franchising
The Franchising system can be defined as: A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system. A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchiser) Compared to licensing, franchising agreements tends to be longer and the franchisor offers a broader package of rights and resources which usually includes: equipments, managerial systems, operation manual, initial trainings, site approval and all the support necessary for the franchisee to run its business in the same way it is done by the franchisor. In addition to that, while a licensing agreement involves

things such as intellectual property, trade secrets and others while in franchising it is limited to trademarks and operating know-how of the business.

Turnkey projects
A turnkey project refers to a project in which clients pay contractors to design and construct new facilities and train personnel. A turnkey project is way for a foreign company to export its process and technology to other countries by building a plant in that country. Industrial companies that specialize in complex production technologies normally use turnkey projects as an entry strategy.

Wholly owned subsidiaries (WOS)

A wholly owned subsidiary includes two types of strategies: Greenfield investment and Acquisitions. Greenfield investment and acquisition include both advantages and disadvantages. To decide which entry modes to use is depending on situations. Greenfield investment is the establishment of a new wholly owned subsidiary. It is often complex and potentially costly, but it is able to full control to the firm and has the most potential to provide above average return. Wholly owned subsidiaries and expatriate staff are preferred in service industries where close contact with end customers and high levels of professional skills, specialized know how, and customization are required. Greenfield investment is more likely preferred where physical capital intensive plants are planned. This strategy is attractive if there are no competitors to buy or the transfer competitive advantages that consists of embedded competencies, skills, routines, and culture. Greenfield investment is high risk due to the costs of establishing a new business in a new country. A firm may need to acquire knowledge and expertise of the existing market by third parties, such consultant, competitors, or business partners. This entry strategy takes much time due to the need of establishing new operations, distribution networks, and the necessity to learn and implement appropriate marketing strategies to compete with rivals in a new market. Acquisition has become a popular mode of entering foreign markets mainly due to its quick access Acquisition strategy offers the fastest, and the largest, initial international expansion of any of the alternative. Acquisition has been increasing because it is a way to achieve greater power. The market share usually is affected by market power. Therefore, many multinational corporations apply acquisitions to achieve their greater market power require buying a competitor, a supplier, a distributor, or a business in highly related industry to allow exercise of a core competency and capture competitive advantage in the market. Acquisition is lower risk than Greenfield investment because of the outcomes of an acquisition can be estimated more easily and accurately. In overall, acquisition is attractive if there are well established firms already in operations or competitors want to enter the region.

Joint venture
There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships. Such alliances often are favourable when: The partners' strategic goals converge while their competitive goals diverge The partners' size, market power, and resources are small compared to the Industry leaders Partners are able to learn from one another while limiting access to their own proprietary skills

The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions. Potential problems include: Conflict over asymmetric new investments Mistrust over proprietary knowledge Performance ambiguity - how to split the pie Lack of parent firm support Cultural clashes If, how, and when to terminate the relationship
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Joint ventures have conflicting pressures to cooperate and compete:

Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position. The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources. The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.

Strategic alliance
A strategic alliance is a term used to describe a variety of cooperative agreements between different firms, such as shared research, formal joint ventures, or minority equity participation. The modern form of strategic alliances is becoming increasingly popular and has three distinguishing characteristics: 1. They are frequently between firms in industrialized nations

2. The focus is often on creating new products and/or technologies rather than distributing existing ones 3. They are often only created for short term duration.